China shows few signs of recovery; investment growth at 15-year low
Money is still not flowing into the real economy
Zhu Qibing,
Macro strategist at China Minzu Securities
beijing — China’s ailing economy showed few signs of improvement in May, with factory output steadying but investment growing at its slowest rate in nearly 15 years, pointing to further weakness unless Beijing ramps up its stimulus efforts.
A flurry of data from power output to retail sales released on Thursday showed no convincing pick-up in the world’s second-largest economy despite three interest rate cuts since November.
That led some analysts to predict growth could cool further in the second quarter, after hitting a sixyear low of seven per cent at the start of the year, and increasing the chance of China cutting interest rates again as early as this month.
“Today’s activity data, plus the soft external trade figures released to persistent weakness, with electricity output unchanged from a year earlier. ANZ noted railway cargo declined by 11.5 per cent, the lowest level on record, reflecting weak domestic trade flows.
Separate data from the central bank showed growth in the broad M2 money supply picked up more than expected to 10.8 per cent, but remained within sight of a recordlow 10.1 per cent struck in April.
China’s banks made 900.8 billion yuan ($145.15 billion) worth of new loans in May, up sharply from April, but economists say many banks remain wary of lending with bad loans on the rise, and suspect a hefty share of “new” loans may be rollovers of existing debt, or for day-to-day company operations, not for new activity.
“Money is still not flowing into the real economy and most Chinese companies continue to face a serious problem in fund-raising,” said Zhu Qibing, a macro strategist at China Minzu Securities in Beijing.
“I think the monetary authorities will gradually shift to use fiscal policy, rather than monetary policy, to reboot the slowing economy.”